For Russia, $4.3 billion arms deal with Iraq is vital

BAGHDAD, July 16 (UPI) -- Russia is delivering 10 Mi-28NE attack helicopters to Iraq as part of a $4.3 billion contract with Baghdad that's become vital for Moscow arms exports to the Middle East despite allegations of corruption.

The corruption scandal no doubt involved Russian officials, as well as Iraqis, since kickbacks are an established element in the arms-dealing business in both cultures.

The deal was held up for several months because of the allegations, but got back on track after Baghdad recently made a down payment , which allowed Russian production of the helicopters to begin.

But the deal, which the Russians huffed was sabotaged by the Americans who wanted to keep Iraq's multibillion-dollar procurement program for themselves, might serve as a template for the intrigue and backroom wheeling and dealing that's the core of most major arms deals in the Middle East.

Arms exports are a major revenue earner for Moscow and a key element in its drive to restore its Cold War influence in the Middle East.

President Vladimir Putin's support for the embattled Damascus regime in Syria, a major Cold War recipient of Soviet weaponry, is an important component of that strategy.

But Russia's problem is that its clients in the Middle East have problems coming up with the cash to pay for the weapons they covet.

Iran's economy is crippled by international sanctions over its contentious nuclear program and Syria's by a 28-month-old civil war that shows no sign of ending.

Libya, a major arms client under the late Moammar Gadhafi, can't even get an army together let alone make big orders for weapons, and the strife that persists more than 18 months after Gadhafi was killed by rebels who captured him, has impeded the restoration of its energy industry, on which its economy depends.

Algeria, another Cold War partner, has been a major arms buyer from Moscow since 2005, when Russia wrote off $4.7 billion of Soviet-era arms trade debt on the understanding that new contracts would exceed that sum. But it's not clear whether Algeria will go ahead with major new contracts.

So Moscow's got a lot riding on the $4.3 billion deal with Baghdad, signed by Iraqi Prime Minister Nouri al-Maliki during a visit to Moscow last October, 10 months after U.S. forces withdrew from Iraq.

This was particularly important for Moscow since Iraq has earmarked tens of billions of dollars for its rearmament program and until Maliki signed up in Moscow to buy Russian arms the Americans had got all the big-ticket contracts.

The Russians were especially pleased about the Mi-28 deal since it was the first foreign order for a system they'd been struggling to market without success.

In November, Maliki's senior adviser, Ali al-Moussawi, stunned Moscow by announcing the deal had been scrapped because of suspicions of "corruption."

It was not specified whether this applied to both sides, or just one. But it's more than likely it concerned both parties.

Iraqi officials are notorious for taking a cut of arms deals, and as the Jamestown Foundation, a Washington think-tank, observed: "Russia does not have any laws that criminalize bribing or paying commissions to foreign officials to promote them purchasing Russian arms.

"The payment of 10 percent of the total sum of any given arms contract as a 'commission to foreign intermediaries' is considered absolutely normal and legitimate, while sometimes the kickback may be much higher.

"In the case of the Iraqi 'package deal,' the kickback, according to Russian experts, could have been $500 million or more ... . In Russia, cash kickbacks -- known locally as 'otkat' -- are widespread and considered the norm in any state budget procurement as well as in private commerce," Jamestown observed.

"In effect, the otkat forms the backbone of present-day Russian business culture, and this is sometimes a huge advantage when competing with Western corporations in Third World nations equally riddled with corruption and the widespread acceptability of kickbacks."

Ultimately, the deal may have got snagged because Maliki's ruling coalition is made up of a several disparate parties from differing sectarian groups and there was a dogfight over who'd get the kickbacks from the Russian deal.

In 2005, Iraqi clean-government investigators uncovered a major fraud involving arms deals worth more than $1 billion and U.S.-appointed Iraqi officials who allegedly took huge kickbacks.

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